Conduct a Cost Analysis of Your Home Visiting Program

What Is Cost Analysis?

What is cost analysis & why should I do it?

There are 4 primary types of cost analysis used in understanding human service programs: (1) investment cost analysis; (2) cost-allocation analysis; (3) cost-effectiveness analysis, and (4) cost-benefit analysis. Which one you choose depends on the question you would like to answer and what data you have available. This tutorial will help you decide which cost analysis approach is most appropriate for your program and what kind of data you need for various cost studies.

1. Investment cost analysis

Investment cost analysis involves calculating all of the expenses required to implement and operate a given program. This is the most basic form of cost analysis and all other types build upon it. The program costs in a basic investment cost analysis should include obvious things such as salaries and benefits (direct costs) for the program, but also the program’s indirect costs (support services, training, office space, etc.). A basic investment cost analysis would be used to show what resources are needed to fund a particular program. The program’s budget(s) and an accounting of all other resources put into the program (in-kind resources, etc.) are required to properly assess a program’s full cost.

2. Cost-allocation analysis

Cost allocation analysis can give you basic information such as the cost of serving one family or child, or more detailed information about how much it costs to operate different parts of your home visiting program. For example, you can use cost-allocation analysis to estimate how much of your program budget is spent on screening families, or on doing paperwork or conducting home visits. Cost allocation provides the basic information required for more sophisticated cost-effectiveness analysis or cost-benefit analysis. Cost-allocation analysis requires budget information, but also information about program participants and services delivered. Cost-allocation analysis could help you identify places to use resources more efficiently, or to better understand the resources needed for service expansion.

3. Cost-effectiveness analysis

Cost-effectiveness analysis compares the costs and outcomes of two or more courses of action. It is a way to determine the best use of resources by comparing programs or interventions in terms of the cost per "unit" of outcome achieved, such as years of life, child welfare cases averted, etc. Investment cost analysis and cost-allocation analysis allow you to calculate program and unit costs, but don’t determine whether the program is an efficient use of resources. For example, other similar programs may produce equivalent results to your program at a lower cost. In order to determine which program arrives at the desired result at the lowest cost, cost-effectiveness analysis is required. It is important to note here that cost-effectiveness analysis should not be used to compare programs with different outcomes—it should only be used to evaluate programs that strive for similar outcome measures (for example, number of child welfare cases avoided). Cost-effectiveness analysis requires specification and collection of key program outcomes so that the relative costs of various program approaches in relationship to outcomes achieved can be compared. In cost-effectiveness analysis, outcomes are compared across programs and therefore data from a "control" or "comparison" group are not needed.

4. Cost-benefit analysis

Cost-benefit analysis (CBA) is used to compare the economic value of programs so that policymakers can best allocate resources. CBA puts a dollar value on both the investment in a program and the outcomes. Because all outcomes are monetized, CBA allows you to determine a cost-benefit ratio–that is, for every dollar invested in the program there are X dollars saved long term. A program with benefits that outweigh its costs has net benefits. CBA requires outcome data that can be analyzed for both program participants and a comparison group as well as costs that can be attached to those outcome data. CBA is the most comprehensive type of cost analysis, and as such it takes more time, effort, and resources to conduct. However, it is important to note that most policymakers are interested in seeing the monetary benefits of a particular program before deciding to invest in it any further.